Charitable giving is a many-splendored thing. It is also one of the largest categories of tax deductions every filing season.


In recent years, the IRS has seen a dramatic increase in fundraising programs involving the sale of donated cars. The General Accounting Office estimates that 733,000 (of 125 million) individual returns for the 2000 tax year claimed a tax deduction for a vehicle donation. These donations were valued at about $2.5 billion and reduced taxpayer liability by an estimated $654 million. This would seem like a great deal for both the taxpayers and the charities involved.


Unfortunately, charitable car donation programs provide a fertile ground for abuse and donation scams are widespread. Otherwise law-abiding taxpayers can become indignant when they learn their vehicle donations are limited after they've seen ads on the internet or in print promising them big deductions for their old cars and trucks. Those donating a vehicle to charity may also be shocked to learn that their charity ends up with pennies on the dollar after a fundraiser deducts administrative and advertising costs related to selling the vehicle.


Meanwhile, the IRS is generally caught between a rock and a hard place when reviewing such non-cash donations. The IRS cannot afford to look miserly and opposed to charitable endeavors by making audits so disagreeable that no one wants to donate property. At the same time, it lacks the audit resources to police the valuation rules in even a fraction of the claimed contributions. In cases where charitable contributions are finally audited, however, most taxpayers should expect the IRS examiner to be looking for a compromise value (i.e., more money from the taxpayer) unless the taxpayer's value for the car donation is airtight. As of 2005, taxpayers face even greater challenges when claiming this type of deduction.


Tax Laws of 2005
Under laws that went into effect back in 2005 as a result of the American Jobs Creation Act of 2004, if the claimed value of a donated motor vehicle, boat, or plane exceeds $500, and the item is sold by the charity, the taxpayer's deduction is limited to the gross proceeds from the sale. The charity must provide an acknowledgment to the donor stating the amount of the gross proceeds within 30 days of the sale.


Also, under the new rules, the charity must provide an acknowledgment to the donor within 30 days of the contribution if the charity will significantly use or materially improve the motor vehicle. In that case, the donor generally may deduct the market value of the vehicle.

A donee organization that knowingly provides a false or fraudulent acknowledgement, or that fails to provide a written acknowledgement containing the required information within the prescribed time frame, will be penalized for each such act or failure. If the donee organization sells the qualified vehicle without any significant intervening use or material improvement, the penalty is the greater of: (a) the product of the highest rate of tax and the sales price stated on the acknowledgement, or (b) the gross proceeds from the sale of the qualified vehicle. With respect to any other qualified vehicle, the penalty is the greater of: (a) the product of the highest rate of tax specified and the claimed value of the vehicle, or (b) $5,000.

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These guys are nice. We like them, so we're popping in a free plug.


Making a Difference


The Good News Garage, an affiliate of Lutheran Social Services of New England, creates economic opportunity by providing affordable and reliable transportation options to people in need. Since 1996 we have provided safe and reliable cars to over 2,000 individuals and families in need of transportation to accept a job, maintain a job, or have access to employment training.


Unlike the vast majority of car donation programs, the mission of the Good News Garage is to repair donated cars and trucks and provide them to low-income families and individuals.


Donating a car, truck, or van is fast and easy. You may donate online anytime, or call us at 1-877-GIVE AUTO (1-877-448-3288) Monday through Friday. Please help us by donating a car today! In addition to receiving a tax deduction, you will also receive the satisfaction of knowing that your donation changed the life of someone in need.


The Tax Advantages
The tax advantage of donating to Good News Garage over other organizations is that we use some cars in our program. When this happens the donor is allowed to deduct the fair market value.


Car Analysis

Good News Garage inspects, repairs donated cars, trucks or vans. We then offer them to income eligible individuals or families.


People in Need
When a car is provided to a family in need, the donor may deduct the fair market value, which is defined as what that car can be sold for on the open market. The fair market value is almost always higher than the price a car gets at auction.


Auction

Luxury cars, cars too expensive to repair or cars that aren't a good match for families in need, go to auction.
Money from auction sales help pay for repairing cars that go to people in need.

The donor may deduct what the car sells for. If greater than $500, GNG is required to provide form 1098 which the donor must attach to their tax return. No documentation is required below $500.


You can contact Good News Garage by calling toll-free 877-GIVE-AUTO/877-448-3288

or by checking the Good News Garage Website.

IRS Officials Urge Care for Those Making a Car Donation; New Law Changes Rules at End of the Year



WASHINGTON ? The Internal Revenue Service issued a consumer alert today to help taxpayers avoid potential pitfalls when they donate their automobiles to charities.


In addition, as taxpayers plan their charitable giving, donors should understand the way that the American Jobs Creation Act of 2004 will alter the rules for the contribution of used motor vehicles, boats and planes after Dec. 31, 2004.


Next year, if the claimed value of the donated motor vehicle, boat or plane exceeds $500 and the item is sold by the charitable organization, the taxpayer is limited to the gross proceeds from the sale.


Under the new rules, the charitable organization must provide an acknowledgement to the donor within 30 days of the sale stating the amount of gross proceeds. Alternatively, if the charity significantly uses or materially improves the vehicles, the charity must certify this intended use and duration and provide an acknowledgement to the donor within 30 days of the contribution. If the charity significantly uses or materially improves the vehicle, generally, the donor may deduct the vehicle’s market value.


For the remainder of 2004, however, the new rules do not apply. Under the rules in effect for 2004, taxpayers will be able to deduct the fair market value of the contributed property.


“Just because the rules will be tightened for vehicles donated next year doesn’t mean anyone should give a car to charity and claim an inflated value this year,” said IRS Commissioner Mark W. Everson.


IRS officials recommend that people who want to donate their vehicle by Dec. 31, 2004, take the following steps:


Check That the Organization is Qualified ? Taxpayers should make certain that they contribute their car to an eligible organization; otherwise, their donation will not be tax deductible. Taxpayers can use the IRS Web site to check that an organization is qualified by searching Publication 78. Publication 78 is an annual, cumulative list of most organizations that are qualified to receive deductible contributions. Publication 78 is also available in many public libraries. In addition, taxpayers can call IRS Tax Exempt/Government Entities Customer Service at 1-877-829-5500. Be sure to have the organization’s correct name and its headquarters location, if possible. Churches, synagogues, temples, mosques and governments are not required to apply for this exemption in order to be qualified. They frequently are not listed in Publication 78. Donations to these institutions are tax deductible.


Itemize in Order to Benefit ? Many taxpayers can’t take a deduction for car donations because they don’t itemize deductions on their personal tax return. For taxpayers, the decision to itemize is determined by whether their total itemized deductions are greater than the standard deduction (for 2004, the standard deduction will be $4,850 for single; $9,700 for married filing jointly). Slightly more than one-third of the 130 million individual taxpayers itemized in 2001, the last year for which complete data is available.

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Scenario A: It's got four wheels and an engine. Sometimes it even runs. But the mechanic's estimate is more than you want to pay, so it's time to get rid of the old clunker in your driveway. A 501(c)(3) public charity you like will take it off your hands. You'll dispose of your car, support a favorite charity, and get a nice income-tax deduction. It's the best of all possible worlds—isn't it?


Scenario B: Your 501(c)(3) organization accepts the donation of a used car, turns it over to a broker to sell, and receives a portion of the proceeds. Your nonprofit receives some much-needed cash, the donor gets a deduction, and the broker makes some money. It's a win-win-win situation—right?


In these two cases, yes. But vehicle donations to charity don't always work out that way. To clarify the situation, on June 29 the IRS issued two new publications on the topic, one for donors and one for charities.


Donors Beware
"A Donor's Guide to Car Donations" (IRS Publication 4303) offers the following advice to individuals thinking of giving a used car to charity:


"Check out the charity"

Only gifts to qualified nonprofits are deductible. If you plan to deduct your vehicle donation from your taxes, you need to verify that the nonprofit receiving the car is a qualified organization before you turn over the keys and title.


Note: If you find a nonprofit on GuideStar, it's likely that your gift to it will be deductible. To be sure, look at the fine print that appears under the organization's EIN on the first page of its GuideStar Report. If it is a 501(c)(3) public charity, your donation will be deductible. If the nonprofit is exempt under another subsection of the tax code—for example, a 501(c)(4) organization or 501(c)(6) entity—contact the organization to ask about the deductibility of your gift.


"See if you'll get a tax benefit"
You can deduct charitable contributions from your taxes only if you itemize your deductions on Schedule A of your 1040. There are also limits to the total amount a donor can deduct for charitable contributions.

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Vehicle donations plummeted in 2005 as tax law changes confused would-be donors



Kent Potvin bought his family a green Chevy Malibu eight Christmases ago, after the transmission blew on their Chevy Corsica.

With more than 100,000 miles on the odometer, the Malibu is worn, and its gas gauge is broken. Rather than sell it, the family donated it last weekto a local charity, Charity Motors,to claim it as a tax write-off.
"It's not a bad little car -- I figured maybe they could do something with it," said Potvin, 45, of Walled Lake.

Fewer people in southeast Michigan are following the Potvins' example at the end of the tax year, which usually is the busy season for car donations, as people try to qualify for last-minute deductions.
At nonprofit Charity Motors, vehicle donations are down 25 percent for the year. Even in November and December -- a time when charities usually get a big boost -- donations are down 20 percent from last year. Motor City Blight Busters, a nonprofit civic improvement group, reports its car donations are off 90 percent from last year. Blight Busters got fewer than a dozen cars in the last three months.

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